Abstract
The rural financial problems of Republican China are bound up to a considerable extent with the 4000 years or more of history of the Chinese people. To understand and appreciate the evolution of modern rural financial institutions, it is both necessary and interesting to consider historical developments in rural credit or forms of credit that peppered China during the decades and centuries prior to the Republican era. An historical retrospective not only provides some colorful and innovative approaches to providing credit access to farmers but also provides context as to why the innovations in cooperative credit that started to emerge in 1921 China are historically significant. In this chapter we want to step back and explore the institutions and methods by which farmers and emperors established the means to address the liquidity and credit needs of farmers in good times and bad. The ‘institutions’ that evolved include granaries, the Qian Hui (money-loan society, known in modern times as ROSCA, rotating savings and credits association), pawn shops, the Qian Zhuang (money shop) and Piao Hao (old-style native private banks), and private money lenders.
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Notes
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Which is how one of the world’s largest granaries in the present era, the Commodity Credit Corporation (CCC) in the United States operates. With the CCC a target price is set below which farmers can voluntarily default on the ‘target loan’ which is equivalent to selling the stored grain to the CCC at the higher-than-market target price. See Gardner, B. L. (1977). Commodity options for agriculture. American Journal of Agricultural Economics, 59(5), 986–992 or Turvey , C. G. , Brorsen, B. W ., & Baker, T. G. (1988, December). A Contingent Claim Pricing Model for Valuing Nonrecourse Loan Programs and Target Prices. In American Journal of Agricultural Economics (abstract Vol. 70, No. 5, pages 1197–1197).
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Benevolent societies, commonly named t’ung-shan hui or ‘societies for sharing goodness’, developed around the Late Ming and early Qing dynasties and expanded beyond the charity granaries to assist impoverished widows, bury the unclaimed dead, set up soup kitchens, and provide capital to merchants and doctors. See Smith (1987). Page 309.
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We are unclear as to the reference to the ‘interest free’ loans referred to in this statement. This may be referring to the private granaries that we discussed above or simply interest-free loans by the benevolence societies that were springing up here and there throughout that period.
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This debate was actually a continuation of a centuries-old debate. In 597 B.C. during the Tcheou dynasty there were two philosophers Yang and Me. Yang believed that all men should be loved alike, with strangers treated and loved as much as the nearest kin. Me, on the other hand, would have no man care about anyone except himself, nor be concerned about the welfare of the rest of mankind, including the emperor (DuHalde 1742, Page 329). Me’s approach is reminiscent of Adam Smith’s invisible hand in The Wealth of Nations: “By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it”. Me’s self-interest seems to refer to absolute self-interest even in non-economic terms. Adam Smith’s self-interest was in economic terms. At any rate the wedge between benevolence and self-interested behavior persisted through Wang’s time, and as between Yang and Me, conflicts arose between Wang and the proponents of the charity granaries . Like Smith and the economic part of Me, Wang believed that free charity distorted market signals and encouraged borrowing for fancy rather than necessity. By charging interest rates , farmers incentives to borrow changed, and it was no longer in their self-interest to borrow unnecessarily, nor was it in their self-interest to become imprudent and complacent in reliance on free loans from the charity granaries .
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We use the word dian in its present-day usage. In the Republican era this is known as tien, Likewise we use zhi in the present day but in the Republican era this was known as chih.
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The term tien as used by Myers (1970) and refers to a mortgage but not of the usual sort. In actuality the term mortgage in his context can be interpreted in the modern sense as a usufruct loan. If interest is charged and the loan not repaid then the holder of the mortgage receives a usufruct right to use the land for his own purpose until the loan is repaid. If interest is not charged then the usufruct right is assigned at the time the loan is made and the holder of the mortgage has immediate use of the land until the loan is repaid. Buck (1930, page 67) notes that the number of usufruct mortgages was quite low, accounting for only 1.2% of total capital recorded in his surveys.
- 53.
Buck , J.L. (1930). Chinese Farm Economy: A Study of 2866 Farms in Seventeen Localities and Seven Provinces in China. University of Chicago Press, Chicago Illinois, pages 67–68.
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Myers (1970). Op Cit, page 95.
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Myers (1970). Op Cit, page 167.
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Myers (1970).
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Hsu, Chi-lien (1928). “Rural Credit in China” Chinese Social and Political Science Review, Vol. 1 :1–15.
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Buck , J.L. (1930). Op Cit, pages 147–148.
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Buck (1930). Op Cit, Table 2, page 148.
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Buck , J.L. (1937). Land Utilization in China: A Study of 16,786 Farms in 168 Localities, and 38,256 Farm Families in Twenty-Two Provinces in Chia, 1929–1933. University of Nanjing, Nanjing China, University of Chicago Press, Chicago, Illinois, Table 6.2, pages 33, 34.
- 61.
China Weekly Review, June 6 1931, pages 16–18 “The Plight of the Manchurian Peasant” by A.A.R. (anonymous). The information reported here is translated from uncited documents prepared by the Chinese Eastern Railway and South Manchurian Railway and translated from Russian and Japanese .
- 62.
The unit of land here is a shang which equals 15 mou. Land ownership ranges from 1 mou to several hundred shang.
- 63.
The reality was that earning a profit for the tenant was still very difficult and with many hurdles and too many intermediary agents: the farmer will carry his stock in native, horse driven, double-wheeled carts to the nearest populated center; the inn owner then acts as middleman and negotiates a price on behalf of the seller; or the grain dealers send out agents to the inns to negotiate directly. The peasant delivers the goods on payment of cash or simply leaves it in the hands of the innkeeper.
But another problem arises in that payment is made in strange Kirin provincial dollar notes , Heilongjiang provincial dollar notes, Mukden provincial dollar notes and the Harbin dollar notes . These almost operate as different currencies and with different exchange rates. The peasant borrows money when it is at its lowest level in the summer and pays it back when it is at its highest level, losing purchasing power along the way. There are also reports of forward sales. The marketer will negotiate for soybean seed in July when the price is lowest for delivery in November when the price is highest. Because there is no forward pricing the farmer cannot hedge the price and is locked in to the lower price. Future deals were officially banned but still widely practiced.
For farmers that live some distance from the central market the additional cost of cartage must be borne by the farmer (who also usually pays a lower rent but must also pay taxes when passing from one district to another). Other taxes can be steep ranging from 2.3% to 3.4% depending on region and on top of this a tax of perhaps $6 per carload. The taxes can amount to as much as 10% of the value of the grain paid by the merchants but no doubt passed on to farmers.
Because of taxes and fees the farmer even in the best years might receive only 40% of the Free on Rail price of the commodities sold with the remainder being absorbed by taxes , fees, cartage, commissions, bribes, and so on.
Banditry is a widespread problem. It is infrequent but when it occurs it is damaging. But because conditions are so bad for so many peasants they actually become part-time bandits themselves. There is also widespread corruption when farmers add dirt to bulk-weight grain; marketers fudging the scales and adding further weight to exporters, and so on, and these activities lead to price discounting.
- 64.
Yang, Solon S.C “Eye Witness Account and Analysis of Wanpaoshan Incident ”.China Weekly Review, August 1 1931, pages 339–342. This section is based on a description of a lease agreement that was central to the July 2, 1931, Wanpaoshan incident. The incident arose from the leasing of lands to Koreans under Japanese protection for growing rice . Our interest in this particular article is the detailed lease arrangement which can be used as an example of lease arrangements from a landlord in Manchuria .
- 65.
Under item 6 in the following list it should be noted that the irrigation ditch described cut across the lands of some 41 farmers who had no interest in the lease arrangement at all. Apparently CLCC/Koreans simply started digging ditches across these private lands without consent and under Japanese direction. This canal stretched for 7 miles by 15 feet wide by 8 feet deep destroying 2000 mou of land (333 acres) and putting an additional 40,000 mou at risk of flood . The Wanpaoshan incident resulted from the landowner protests. Changchun was the transfer point between the Japanese controlled South Manchuria Railway and the Soviet controlled China Eastern Railway and also home to a significant Japanese garrison. Under the orders of the Japanese , the Korean farmers, growing rice , were digging an irrigation canal drawing water from the Yitung River under Chinese protest. Failing to halt construction, 500 farmers armed with hoes, rakes, and scythes stormed the Korean settlement and destroyed the ditches. Japan responded by sending the military, evicting the farmers and maintaining control over the area. Ten Chinese farmers and two mounted policemen were killed. Meanwhile, as the news of the attack hit Soule, Koreans and Chinese clashed resulting in 44 Chinese deaths and one Korean dead.
Editorial, “Japan Uses Koreans in New Plan to ‘Conquer’ Manchuria ” China Weekly Review, July 11 1931, pages 208–209.
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1 picul = 1 dan = 50 kg.
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Fu, H., Turvey, C.G. (2018). Traditional Forms of Credit in Rural China. In: The Evolution of Agricultural Credit during China’s Republican Era, 1912–1949. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-319-76801-4_4
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